Method for fully insuring large bank deposits using a plurality of banks that receive portions of each large deposit

ABSTRACT

An Interbank Deposit Placement System (IDPS) that allows banks participating in the service to offer their customers multiple deposits so that potential deposit (fund) amounts exceeding an applicable Federal deposit insurance limit (e.g., $100,000) are fully insured. The IDPS partitions each of the potential deposit amounts into a plurality of deposit portions that do not exceed the Federal deposit insurance limit. In one embodiment, a proposed list of banks to which the deposit portions are allocated is presented to a recipient (e.g., bank representative, depositor) who is offered the option of modifying the proposed list during an established time window. After the time window expires, a deposit is established on behalf of each bank on the list to which the specific deposit portion was allocated by the processor.

CROSS-REFERENCE TO RELATED APPLICATIONS

This application is a continuation of copending U.S. patent applicationSer. No. 10/347,128 filed Jan. 17, 2003, which in turn is acontinuation-in-part of U.S. patent application Ser. No. 10/124,462,filed Apr. 17, 2002, both entitled “Method and Apparatus for FullyInsuring Large Bank Deposits,” both of which are incorporated herein byreference in their entirety.

This application claims the benefit of U.S. Provisional Application No.60/307,815, filed Jul. 27, 2001, entitled “Method and Apparatus forProviding an Insured Return on a Bank Deposit,” and U.S. ProvisionalApplication No. 60/323,365, filed Sep. 20, 2001, entitled “Method andApparatus for Allowing Individual Banks to Provide Government-BackedInsurance on Large Deposit Amounts.”

BACKGROUND OF THE INVENTION

In many banking systems throughout the world, bank deposits ofindividual depositors are insured by government-run deposit insuranceprograms up to an established deposit insurance limit. In the UnitedStates, for example, the current deposit insurance limit is generally$100,000 per individual account per depositor in any one bank. A similarinsurance limit for credit union accounts is also in effect for depositsin U.S. credit unions.

Depositors wishing to have government-backed insured funds on large bankdeposits in excess of the established insurance limit have limitedoptions. A depositor can choose to open multiple accounts in separatebanks, each account being maintained at an amount up to the establishedinsurance limit. This process is time-consuming and administrativelycumbersome. Alternatively, a depositor can place a large deposit in anamount that is a multiple of the established insurance limit through abanking company having a number of affiliated banks to which portions ofthe large amount may be transmitted for deposit. In the United States,such multi-account deposit services are currently offered by only a fewfinancial institutions, such as Citigroup Inc., Merrill Lynch & Co.,Inc. and Fishback Financial Corporation. Thus, competition is limitedand, for the vast majority of depositors, there is no opportunity toobtain such a service from a local community bank. Additionally, adepositor (or the bank at which the deposit is to be placed) canpurchase deposit insurance from a private insurance company. But suchinsurance can be expensive and raises concern as to whether the privateinsurance company is able to satisfy its obligations in the event of abanking system failure. In addition, deposit brokers may be used todistribute a depositor's funds among multiple banks, each of which couldoffer protection up to the established deposit insurance limit. Thisalternative usually requires banks to pay the highest rates availablethroughout the country, and usually requires depositors to establishrelationships with unknown institutions.

The growth of bank core deposits has failed to keep pace with loan andasset growth, particularly in community banks. As a result, banks haveturned to alternative funding sources, such as Federal Home Loan Bank(FHLB) advances, wholesale funding and brokered deposits. Thesealternative funding sources are both more expensive and volatile thantraditional core deposits, causing the net interest margins of the banksto be reduced and subjecting the banks to increased risk.

While the relative amount of insured bank deposits has declined over thepast four decades (in comparison to loan growth), the demand for largedenomination risk-free investment products has remained strong. What isneeded is a method and apparatus for processing large deposits to helpbanks attract new depositors looking to invest large amounts of funds inan investment vehicle eligible for full deposit insurance coverage.

BRIEF SUMMARY OF THE INVENTION

The present invention establishes an Interbank Deposit Service thatallows a bank to offer multiple bank deposits to its customers in orderto achieve deposit insurance in aggregate amounts greater than theamount any individual bank could offer (i.e., the established depositinsurance limit). The banks whose deposits are offered through theInterbank Deposit Service are normally unaffiliated with one another.Each of the deposits may be a certificate of deposit (CD).

The banks are federally insured financial institutions that are approvedto participate in an Interbank Deposit Placement System (IDPS) thatprovides the Interbank Deposit Services.

In a preferred embodiment of the present invention, a potential depositamount that exceeds an established deposit insurance limit is processedusing a computer-implemented method so that the total amount to bedeposited is fully insured. The order to process the potential depositamount is submitted to the Processor, which establishes multipledeposits, each with a different bank, for the customer seeking todeposit the potential deposit amount. Each deposit has a predeterminedmaturity. The Processor receives multiple orders submitted by banks toprocess the potential deposit amounts. The Processor allocates thepotential deposit amounts to deposits at multiple banks so that nodeposit exceeds the established deposit insurance limit. Through theProcessor, a deposit is established for the depositor at the bank towhich a portion of the depositor's funds was allocated as a deposit bythe Processor.

Each bank submitting an order to process potential deposit amounts tothe Processor agrees to accept from the Processor an aggregate amount ofdeposits equal to the potential amount submitted to the Processor.

Each bank submitting an order to process potential deposit amounts tothe Processor may specify a deposit interest rate. The Processor maycompare the specified deposit interest rate to an interest ratedetermined by the Processor based on the specified rates submitted byall banks to the Processor (i.e., ERate) participating in an allocation.

The ERate determined by the Processor for a given allocation ofpotential deposit amounts may be based on a volume weighted average ratespecified for potential deposit amounts with the same maturity.

The Processor may calculate the amount of a payment to be made to orreceived by banks participating in the allocation to compensate fordifferences between the deposit interest rate specified by a bank andthe ERate determined by the Processor.

The amount of each deposit may be within the established depositinsurance limit. The Processor may initiate the process of forwardingthe payment to the depositor or the depositor's banks or crediting thepayment to an account thereof each time that interest earned on theassociated deposit is paid at the option of the depositor or to ensurethat the amount of the deposit does not exceed the established insurancelimit.

The Processor may prioritize the orders based on the type of depositestablished at the banks, the size of each of the potential depositamounts, the interest rates specified by the banks, the geographicallocation of the banks, the preferences indicated by the depositors, thepreferences indicated by the banks, the ability of the banks toestablish a fully insured deposit for a Lending Bank, or theavailability of funds from a Lending Bank (which in turn may depend onthe asset size or the credit rating of the bank at which the LendingBank is to make a deposit).

The established deposit insurance limit may be in accordance with U.S.law, regulations and rules established by the U.S. Federal DepositInsurance Corporation (FDIC), the National Credit Union Administration(NCUA) or other insurance programs or the laws, regulations and rulesestablished by other jurisdictions.

In another embodiment of the present invention, a Settlement Account isestablished for each of the banks. The Processor receives multipleorders to process potential deposit amounts. Each order includes thematurity and interest rates of the deposits to be established for aspecific potential deposit amount. The Processor sorts by maturity thedeposits to be established based on the orders. The Processor maycompare the interest rate specified by each bank for a potential depositamount of a particular maturity to an ERate established by the Processorfor that maturity. The Processor allocates each potential deposit amountto deposits at multiple banks. No deposit exceeds the establisheddeposit insurance limit. The Processor allocates each deposit to aspecific one of the banks. Through the Processor, a deposit isestablished for the depositor at the bank to which a portion of thedepositor's potential deposit amount was allocated by the Processor.Based on the interest rate offered by each bank and the ERate that theProcessor calculates, the Processor credits or debits a Rate BridgePayment to the Settlement Account of each bank.

In response to each order, a proposed list of banks at which deposits,resulting from the allocation of the potential deposit amounts are to beplaced, is made available to the depositor. The depositor may be offeredthe option of modifying the proposed list during an established timewindow. After the time window expires, the Processor may establish adeposit at each bank on the list. Through the Processor, a deposit isestablished for the depositor by the bank to which a portion of thepotential deposit amount was allocated as a deposit by the Processor.The depositor associated with the deposit is the ultimate owner of thedeposit. The deposit may be titled in the name of the Processor (assubcustodian for the bank that placed the order) and/or in the name ofthe bank that placed the order (as custodian for the depositor).

BRIEF DESCRIPTION OF THE SEVERAL VIEWS OF THE DRAWING

The following detailed description of preferred embodiments of theinvention will be better understood when read in conjunction with theappended drawings. For the purpose of illustrating the invention, thereare shown in the drawings embodiments that are presently preferred. Itshould be understood, however, that the invention is not limited to theprecise arrangements and instrumentalities shown.

In the drawings:

FIG. 1 is a simplified block diagram of an Interbank Deposit PlacementSystem that processes potential deposit amounts for multiple banks inaccordance with a preferred embodiment of the present invention;

FIG. 2 is a block diagram illustrating an order review feature of theInterbank Deposit Placement System of FIG. 1;

FIG. 3 is a block diagram showing the Interbank Deposit Placement Systemwith a settlement table for implementing the distribution of depositsand compensating for deposit mismatches among multiple RelationshipBanks in accordance with one embodiment of the present invention;

FIG. 4 is a block diagram showing how deposit mismatches among multipleRelationship Banks are compensated for in accordance with one embodimentof the present invention;

FIG. 5A is a block diagram illustrating the allocation of a potentialdeposit amount among multiple deposits, each established by a differentbank in the name of the subcustodian of custodian for the depositor.

FIG. 5B is a block diagram illustrating the establishment of deposits bya single bank, each in exchange for a portion of a potential depositamount received from multiple banks.

FIGS. 6 and 7 are block diagrams that illustrate the placement processesused by the Interbank Deposit Placement System in accordance with apreferred embodiment of the present invention; and

FIGS. 8A and 8B, taken together, is a high-level functional flowchart ofprocesses used by the Interbank Deposit Placement System of FIG. 1 toprocess potential deposit amounts in accordance with a preferredembodiment of the present invention.

DETAILED DESCRIPTION OF THE INVENTION 1. Definitions

“Bank” generally refers broadly to a financial institution that offersdeposits that are insured up to an established deposit insurance limit.The term “bank” can include, but is not limited to, banks, thrifts,credit unions, savings & loans, industrial loan companies and otherdepository institutions that can provide deposits guaranteed bygovernment-backed deposit insurance. A bank may be a member of theInterbank Deposit Service.

“Custodian” refers to a Relationship Bank that acts as a custodian fordepositors with respect to deposits established through the InterbankDeposit Service.

“Deposit” refers to an agreement between a depositor and bank pursuantto which the bank promises to pay the depositor a particular rate ofreturn (e.g., a fixed or variable interest rate) for allowing the bankto hold and use funds received from the depositor. The term “deposit”includes, but is not limited to, time deposits (CDs) and non-time demanddeposits. Without limiting the foregoing, deposits may be inuncertificated form or certificated form.

“Deposit mismatch” refers to an imbalance when a bank (as RelationshipBank) places orders with the Interbank Deposit Placement System toprocess potential deposit amounts made available by depositors and thebank (as Receiving Bank) is not allocated an equivalent dollar amount ofportions of deposits by the Interbank Deposit Placement System in returnfor the orders.

“Deposit Placement Failure” refers to an occurrence when there are notenough banks at which the Interbank Deposit Placement System canestablish deposits in order to ensure full insurance coverage for allpotential deposit amounts. This generally results from a bank submittingto the Interbank Deposit Service a very large potential deposit amount.

“Deposit portion” or “tranche” refers to a portion of a potentialdeposit amount, the amount of which does not exceed the establisheddeposit insurance limit.

“Depositor Agreement” refers to a legal agreement between a RelationshipBank and a depositor that authorizes the Relationship Bank to placeorders for potential deposit amounts with the IDPS.

“ERate” refers to an earnings (i.e., interest) rate that may be used inthe determination of an interest plug amount or present value payment.The ERate could be the weighted average for a particular maturity of theinterest rates of all orders received for a particular Placement Datefor a particular product or it could be set to an established rate suchas LIBOR.

“Established deposit insurance limit” refers to the extent to which agovernment or other entity insures a deposit or deposits of one customer(depositor) in one bank. As an example, the established depositinsurance limit can be in accordance with U.S. law, regulations andrules established by the U.S. Federal Deposit Insurance Corporation(FDIC) or the National Credit Union Administration (NCUA).

“f” refers to an amount of funds that does not exceed the establisheddeposit insurance limit for a deposit. (For example, with respect to aCD, “f” is equal to a principal amount of funds that, together with anyaccrued interest over the term of the CD, does not exceed theestablished deposit insurance limit).

“Interbank Deposit Placement System” (IDPS) refers to a system thatprovides an Interbank Deposit Service whereby orders pertaining topotential deposit amounts that are available to banks which are membersof the Interbank Deposit Service are submitted to the Processor forallocation among deposits at multiple banks in accordance with one ormore algorithms.

“Interest plug” refers to a particular type of present value paymentmade to or received from a bank to compensate for differences amongdeposit terms offered by other member banks.

“Interest rate” refers to the annualized rate of return, which may befixed and/or variable, that a bank pays a customer in exchange for thecustomer's funds being held at the bank. Interest rate also may beexpressed as a spread above or below some agreed upon rate (e.g.,T-Notes, LIBOR, or federal funds rate) or it may consist of someearnings rate.

“Issuing Agent” refers to an entity that issues deposits as agent for aReceiving Bank or Surplus Bank. An issuing agent may be the Processor.

“Lending Bank” refers to the entity (which may be one of many and whichmay be a bank) that agrees to place additional deposits into theInterbank Deposit Placement System to resolve deposit mismatchsituations.

“LIBOR” (the London Interbank Offered Rate) refers to an internationalaverage of offered rates for dollar deposits for a term of maturitybased on quotes from several major banks. It is used to calculate therate at which banks lend funds to creditworthy banks.

“Municipal CD” refers to a certificate of deposit purchased by a stateor local governmental entity.

“Order” refers to a request inputted by a representative of aRelationship Bank into the Interbank Deposit Placement System to processa potential deposit amount made available by a depositor so thatportions of the potential deposit amount may be allocated to multiplebanks.

“Participating Bank Agreement” refers to a legal agreement between eachbank and the Sponsor that establishes the terms for participating in theInterbank Deposit Placement System.

“Placement Date” refers to the date on which the Interbank DepositPlacement System initiates the process by which potential depositamounts are allocated to deposits at multiple banks.

“Potential deposit amounts” (also referred to herein as “funds” or “fundamounts”) refers to amounts submitted for deposit, the amount of whichgenerally exceeds an established deposit insurance limit.

“Preferred broker” refers to a broker dealer entity that facilitates orcreates a secondary market for the purchase and sale of depositsestablished through the Interbank Deposit Service.

“Present value payment” or “PVP” (also known as a “Rate Bridge Payment”)refers to a payment transferred from one bank to another to equalize,for each of the banks, the value of the interest payments over the termof the deposits established from the potential deposit amounts inputinto the Interbank Deposit Placement System with the interest paymentsover the term of the deposits that the bank (as Receiving Bank)establishes through the Interbank Deposit Placement System. Orders maybe matched with other orders at the Interbank Deposit Placement Systemthat have different deposit terms and/or principal amounts. Banks mayneed to make/receive a present value payment to ensure that the amounteach bank places in the Interbank Deposit Placement System is equivalentto the amount each bank receives (which thereby means that the termsthat the bank established with its depositor that made the potentialdeposit amount available are effectively reflected by the deposit thatthe bank receives from the Interbank Deposit Placement System). Thepresent value payment is equal to the difference in the future cashflows (of both principal and interest payments) made by each bank,discounted back using the present value rate. The present value paymentsare paid/received by banks on the business day after the Placement Date.

“Present Value of Future Cash Flow” or “PV of Future Cash Flow” refersto a mathematical adjustment to account for the time value of money fora series of cash flows occurring over a period of time. This calculationis widely known to those skilled in the art.

“Processor” refers to a component of the Interbank Deposit PlacementSystem that is responsible for allocating potential deposit amounts tomultiple banks. The Processor also refers to the component of theInterbank Deposit Placement System responsible for one or all of thefollowing: maintaining customer account records, maintaining SettlementAccounts, serving as issuing and paying agent on behalf of ReceivingInstitutions with respect to deposits established through the InterbankDeposit Service, and serving as subcustodian for Relationship Banks. Thefunctions of the Processor may be performed by one or more entities.

“Receiving Bank” refers to a bank that establishes a deposit inaccordance to instructions generated by the Processor.

“Relationship Bank” refers to a bank to which a potential deposit amountis made available by a depositor that places an order with the InterbankDeposit Placement System to process the potential deposit amount.

“Settlement Account” refers to an account established by a bank with theProcessor or other bank through which all fees and cash flows associatedwith deposits established through the Interbank Deposit Service settle.

“Settlement Date” refers to the date, usually the day after a PlacementDate, on which the Processor establishes deposits on behalf on banks.

“Sponsor” refers to an entity that operates a system to processpotential deposit amounts, which interface may include the Processor.

“Subcustodian” refers to an entity that acts as the subcustodian for acustodian (i.e., Relationship Bank) with respect to deposits establishedthrough the Interbank Deposit Service for the depositor of theRelationship Bank. The subcustodian may be the Sponsor or other entity.

“Surplus Bank” refers to a bank that has agreed with the IDPS to acceptdeposit portion(s) in excess of deposit portion(s) (if any) that it isseeking to place on a given Placement Date.

2. Detailed Description

The present invention offers an Interbank Deposit Service, which permitsbanks that have entered into an agreement with a Sponsor of an interfaceused to arrange for the placement of the funds of a Depositor thatexceed an established deposit insurance limit at other banks that haveentered into a Participating Bank Agreement with a Sponsor. For example,a deposit insurance limit was established by the U.S. Federal DepositInsurance Corporation (FDIC) to insure the funds of a depositor up to$100,000 at a bank.

FIG. 1 shows a simplified block diagram of an Interbank DepositPlacement System (IDPS) 100 that provides a Sponsor-operated interfaceused to process potential deposit amounts for banks 105, 120, 125 inaccordance with the present invention. Placements of funds through theIDPS 100 are made on a best efforts basis and each bank may be requiredto pay a Sponsor of the IDPS 100 a fee for providing the InterbankDeposit Service. The IDPS 100 does not place a customer's funds at aparticular bank if aggregating the resulting deposit with any otherdeposits placed by the IDPS 100 into that bank on behalf of the customerwould cause the total deposits of the customer at the bank to exceed theestablished deposit insurance limit. Each Relationship Bank will act ascustodian for its customer with respect to deposits established for thecustomer through IDPS 100. A Sponsor of the IDPS 100 may act as theRelationship Bank's subcustodian for the deposits. A Depositor Agreementbetween the bank and the customer will disclose the existence and roleof the IDPS 100, the Relationship Bank's receipt of equivalent depositsthrough the IDPS 100, and the Relationship Bank's payment of a fee tothe Sponsor of the Interbank Deposit Service.

The Interbank Deposit Service may periodically establish the maturitiesof multiple deposits instruments that may be offered through the IDPS100. Each Relationship Bank 105, 120, 125 seeking placement of customerfunds through the IDPS 100 will establish a rate acceptable to itscustomer (“Depositor” 115, 130, 135) for deposits in one or moreavailable maturities. Deposits may compound interest daily (or at suchother frequency as may be established) and deposits with shortermaturities may pay interest at maturity. For deposits with longermaturities, the Depositor may select an end of month payment or paymentat maturity and may be able to select additional payment options at alater date. The Depositor's funds will be submitted to the IDPS 100 forplacement at Receiving Banks on the terms agreed to by the Depositor115, 130, 135 and the Depositor's Relationship Banks 105, 120, 125. Whenan order to process a potential deposit amount is placed by RelationshipBank 105, the IDPS 100 allocates the deposit portions to Receiving Banks120 and 125. Receiving Banks 120 and 125 will establish through the IDPS100 a deposit for Depositor 115 (a Depositor of Relationship Bank 105).When an order to process a potential deposit amount is placed byRelationship Bank 120, the IDPS 100 allocates the deposit to ReceivingBank 105. Receiving Bank 105 will establish a deposit for Depositor 130(a Depositor of Relationship Bank 120). When an order to process apotential deposit amount is placed by Relationship Bank 125, the IDPS100 allocates the deposit to Receiving Bank 105. Receiving Bank 105 willestablish a deposit for Depositor 135 (a Depositor of Relationship Bank125).

As shown in FIG. 2, prior to each placement of customer funds throughthe IDPS 100, the Relationship Bank 205 associated with the Depositor210 makes available to the Depositor 210 a proposed list of ReceivingBanks that will establish deposits for Depositor 210. The Depositor 210may inform the Relationship Bank 205 of the names of Receiving Banks atwhich the Depositor does not want to deposit funds, and in turn, theRelationship Bank provides that information to IDPS 100. For example, ata particular time of day (e.g., 2:30 p.m. Eastern Time) on the PlacementDate, the IDPS 100 provides to the Relationship Bank 205 a list of theproposed Receiving Banks that will issue deposits to Depositor 210, theproposed amounts to be deposited in each such Receiving Bank, and a listof alternate Receiving Banks. The Depositor 210 is offered a time window(e.g., until 3:30 p.m. Eastern Time) to obtain from the RelationshipBank the list of proposed Receiving Banks, whereby the Depositor maythen advise the Relationship Bank of the name or names of any proposedReceiving Banks or proposed alternate Receiving Banks at which theDepositor 210 does not want its funds placed. The Relationship Bankadvises the IDPS 100 of the Depositor's determinations regarding anyReceiving Bank(s) at which the Depositor 210 does not want its fundsplaced.

The Relationship Bank places the Depositor's funds through the IDPS 100,which in turn allocates the funds to deposits at one or more ReceivingBanks in amounts that do not exceed the established deposit insurancelimit. The IDPS 100 may monitor the credit quality of the banks and mayensure that no funds placed for a Depositor through the IDPS 100 at anyone bank exceed the established deposit insurance limit.

FIG. 3 is a block diagram showing IDPS 100 with a Settlement Accounttable 305 for implementing the distribution of potential deposit amountsand compensating for deposit mismatches among multiple RelationshipBanks 310, 320, 330, 340 in accordance with one embodiment of thepresent invention. For example, Relationship Bank 310 places an orderwith IDPS 100 indicating that its Depositor 315 seeks to place $3fthrough IDPS 100 at an interest rate of 4.00% (the interest rate offeredby Relationship Bank 310) for a 52-week CD (or other maturity desired bythe Depositor 315). After processing the order, the IDPS 100 acts as anissuing agent for Relationship Banks 320, 330, and 340, and issues threeseparate deposits each of which is in an amount ($f) that with accruedinterest will not exceed the established deposit insurance limit ($f).Each CD issued by IDPS 100 will be issued to the Processor assubcustodian for Relationship Bank 310. Settlement Account table 305 isused to track the transfer of funds and is adjusted (through the RateBridge Payment calculation) for differences in the interest ratesoffered by each of the Relationship Banks 320, 330 and 340 when comparedto the interest rate (ERate) determined by the IDPS 100.

Present Value Payments (PVPs) are credited or debited to and from theSettlement Accounts of each bank. For example, if the ERate determinedby the IDPS 100 is 4.50% and Bank 310, for which multiple depositshaving a 52-week maturity are established, offers an interest rate of4.00%, the Settlement Account of Bank 310 will be updated to reflect theRate Bridge Payment. The Depositor Agreements will disclose the possiblepayment and/or receipt of a PVP by banks arising from reciprocaldeposits through the Interbank Placement Service.

The Processor may calculate the amount of a payment to compensate fordifferences between the offered deposit interest rate and the ERatedetermined by the Processor.

The amount of the payment may be determined based on:

(1) the ERate determined by the Processor;

(2) the offered deposit interest rate;

(3) the amount of the specific deposit portion;

(4) a number of times during a predetermined time period that earningson the specific deposit portion are to be compounded;

(5) a number of times that the predetermined time period is to occur;

(6) a payout frequency of earnings on the specific deposit portion; and

(7) an established discount rate.

The established discount rate may be the applicable London InterbankOffered Rate (LIBOR) or a derivative thereof.

FIG. 4 is a block diagram showing how deposit mismatches among multipleRelationship Banks are compensated in FIG. 4 according to one embodimentof the present invention. Although FIG. 4 depicts funds as flowing fromthe bank to IDPS 410, and vice versa, it should be understood that, in apreferred embodiment, all such fund transfers may be implemented bycrediting or debiting Settlements Accounts 416 established for each ofthe Relationship Banks.

On a date specified by the Sponsor of the IDPS 410 (the “PlacementDate”), the Processor 412 in the IDPS 410 will compare the orders placedby each Relationship Bank 420, 430, 440, 450 submitting orders toprocess potential deposit amounts and sort the orders based on thematurities of the deposits being sought by the Depositors. The orderssubmitted for processing by each Relationship Bank 420, 430, 440, 450 ona particular Placement Date will first be allocated for deposits atother Relationship Banks submitting funds to the IDPS 410 for placementin deposits of the same maturity. If all of the orders submitted byRelationship Banks to the IDPS 410 cannot be processed on a particularPlacement Date, the IDPS 410 will either inform the Relationship Bankthat potential deposit amounts cannot be placed or, in the alternative,place the excess funds as described below.

FIG. 4 shows an example in a system 400 where a “mismatch” occurs andRelationship Banks 420, 430, 440, 450, are “made whole” through theaddition of deposits from a Lending Bank. Under the assumption that alldeposit terms offered by each of the Relationship Banks 420, 430, 440,450, are the same, no present value payments are transferred.

Relationship Bank 420 receives a potential deposit amount of $2f fromcustomer 455. Relationship Bank 420 inputs an order into IDPS 410 toprocess a $2f potential deposit amount.

Relationship Bank 430 receives a potential deposit amount of $3f fromcustomer 460, and a potential deposit amount of $2f from customer 465.Relationship Bank 430 inputs orders into IDPS 410 to process potentialdeposit amounts totaling $5f

Relationship Bank 440 receives a potential deposit amount of $2f fromcustomer 470, and a potential deposit amount of $f from customer 475.Relationship Bank 440 inputs orders into IDPS 410 to process potentialdeposit amounts totaling $3f

Relationship Bank 450 receives a potential deposit amount of $2f fromcustomer 480. Relationship Bank 450 inputs an order into IDPS 410 toprocess a $2f potential deposit amount.

Relationship Bank 420 receives from IDPS 410 via path 490, two depositportions each valued at $2f and associated with potential depositamounts placed by customers 460 and 475. Since Relationship Bank 420received a total value of deposit portions equivalent to the value oforders it input into IDPS 410, the Relationship Bank 420 is “madewhole.”

Relationship Bank 430 receives from IDPS 410 via path 492, three depositportions each valued at $f and associated with potential deposit amountsplaced by customers 455, 470 and 480. Since Relationship Bank 430 onlyreceived $3f of deposit portions and the value of orders it input intoIDPS 410 was $5f, a “mismatch” 498 occurs. Due to “mismatch” 498, theRelationship Bank 430 is not “made whole” and thus an additional $2f offunds is deposited into Relationship Bank 430 by Lending Bank 495through IDPS 410.

Relationship Bank 440 receives from IDPS 410 via path 494, three depositportions each valued at $f and associated with potential deposit amountsplaced by customers 455, 465 and 480. Since Relationship Bank 440received a total value of deposit portions equivalent to the value oforders it input into IDPS 410, the Relationship Bank 440 is “madewhole.”

Relationship Bank 450 receives from IDPS 410 via path 496, two depositportions each valued at $f and associated with potential deposit amountsplaced by customers 460 and 470. Since Relationship Bank 450 received atotal value of deposit portions equivalent to the value of orders itinput into IDPS 410, the Relationship Bank 450 is “made whole.”

For each specific Relationship Bank 420, 430, 440, 450, the IDPS 410allocates at least some of the deposit portions so as to minimize oreliminate the difference between the total amount of potential depositamounts for which the specific Relationship Bank 420, 430, 440, 450placed orders into the IDPS 410 and the total amount of deposit portionsallocated to the specific Relationship Bank 420, 430, 440, 450 by theIDPS 410. The amount of each specific deposit portion is no greater thanthe established deposit insurance limit.

If the total amount of deposit portions allocated to the specificRelationship Bank 420, 430, 440, 450 is less than the total amount ofpotential deposit amounts for which the specific Relationship Bank 420,430, 440, 450 placed orders into the IDPS 410, the IDPS 410 calculatesan amount of additional funds to be deposited by the Lending Bank intothe specific Relationship Bank 420, 430, 440, 450 and directs themovement of such additional funds to the specific Relationship Bank 420,430, 440, 450 so that the difference is minimized or eliminated.

For Surplus Bank 497, IDPS 410 in transaction 499 assigns to SurplusBank deposit portions associated with potential deposit amounts placedby customers 460, 465, totaling $2f. In some cases on a Placement Date,a bank may elect to be only a Receiving Bank, in this capacity a SurplusBank. The IDPS 100 may have profits or losses in connection withplacement of potential deposit amounts at Surplus Banks.

Each bank accepting deposits through the IDPS 410 (in this capacity, a“Receiving Bank”) on the day following a Placement Date (the “SettlementDate”) will issue to the Sponsor, as subcustodian for the RelationshipBank, one or more deposits, each in an amount not to exceed theestablished deposit insurance limit on the terms established for thedeposits by the Relationship Bank and its Depositor. On each PlacementDate, a bank that places Depositor funds through the IDPS 410 will beboth a Relationship Bank (with respect to orders it places on behalf ofits depositors) and a Receiving Bank (with respect to deposit portionsit accepts through IDPS 410). On a Placement Date, a Surplus Bank may beboth a Relationship Bank and a Receiving Bank or only a Receiving Bank.

FIG. 5 is a block diagram illustrating the partitioning of a potentialdeposit amount of a depositor into multiple deposits issued by differentbanks (Receiving Banks) to the subcustodian for Bank A. (Bank A is thecustodian for Bank A's customer). FIG. 5B illustrates the depositsissued by Bank A to the subcustodian for Banks B-M. FIGS. 5A and 5Billustrate how Bank A is “made whole”.

FIGS. 6 and 7 are block diagrams that illustrate the placement processesused by the IDPS 100 in accordance with the present invention.Placements of customers' funds through the IDPS will not necessarily bemade on a one-to-one basis. A Relationship Bank placing $1,000,000 ofthe funds of a Depositor through the IDPS with eleven Receiving Banks ona particular Settlement Date may, as a Receiving Bank, issue fourteendeposits with aggregate principal amounts of $1,000,000 to theDepositors of fourteen other Relationship Banks. There may be little orno overlap between the banks, acting as Receiving Banks, at which theRelationship Bank places funds and the banks, acting as RelationshipBanks, to which the Relationship Bank, acting as a Receiving Bank,issues deposits. (See also FIGS. 5A and 5B).

On any Placement Date, variances may exist between the interest rate aRelationship Bank is willing to pay to its Depositor on a deposit andthe interest rate other Relationship Banks are willing to pay to theirDepositors on deposits of equal maturity. These differences will bereconciled by a one-time present value payment (“PVP”). The PVP iscalculated by the IDPS 100 by comparing the interest rate that theRelationship Bank has established with its Depositor (and that theDepositor is receiving on deposits issued by the Receiving Banks) withan “ERate” established by the IDPS 100 as described below. It could alsobe determined by other means. The ERate will be determined on eachPlacement Date based on the volume weighted average interest rate of thedeposits of each maturity placed through the IDPS 100 on that PlacementDate. A Relationship Bank will pay or receive a PVP based upon thedifference, if any, between the interest rate established with itsDepositor, and the ERate. The IDPS 100 may also permit deposit maturitymismatches between deposits issued by Relationship Banks and depositsissued by Receiving Banks that would be reconciled by proceduresdeveloped by the IDPS 100.

As set forth above, the IDPS 100 will first seek to match the fundssubmitted for placement by one Relationship Bank with the fundssubmitted for placement by other Relationship Banks on the samePlacement Date. As a result, banks that are not submitting funds forplacement typically will not be able to receive funds submitted forplacement by a Relationship Bank. However, if on any Placement Date someor all of the funds a Relationship Bank has submitted for placementthrough the IDPS 100 are not matched with funds submitted for placementby other Relationship Banks, the unmatched funds may be placed inamounts not to exceed the established deposit insurance limit at banksthat are willing to accept deposits in excess of the funds they havesubmitted for placement through the IDPS 100 on that Placement Date orat banks that are willing to accept deposits and have not submitted anyfunds for placement through the IDPS 100 on that Placement Date (in thiscapacity each, a “Surplus Bank” 605). The IDPS 100 will have discretionon any Placement Date to select the banks that will receive funds asSurplus Bank 605 and may negotiate with the Surplus Bank 605 theinterest rate that the Surplus Bank 605 will pay for deposits.

Referring to FIG. 6, on each Placement Date that a bank agrees to acceptdeposits as a Surplus Bank 605, it will act as a Receiving Bank. It willissue a deposit(s) to the subcustodian for Relationship Bank 610 andwill pay or receive a PVP 650 based on the difference between theinterest rate(s) the Relationship Bank 610 agreed to with its Depositor620 and the ERate, as determined by the IDPS 100 on the Placement Date.In addition, the Surplus Bank 605 may pay to the IDPS 100 a PVP 660representing any excess of the interest rate negotiated between theSurplus Bank 605 and the IDPS 100 over the applicable ERate or receivefrom the IDPS 100 a PVP 660 representing any excess of the applicableERate over the rate negotiated between them.

For each deposit a Surplus Bank agrees to establish for a RelationshipBank's Depositor, the IDPS 100 will request a bank with which the IDPS100 has established a credit facility (“Lending Bank” 600) to make adeposit at a Relationship Bank 615 in an amount equal to the amount ofthe unmatched deposit placed with the Surplus Bank 605. The RelationshipBank 615 will establish a deposit for the Lending Bank 600 with aninterest rate equal to the applicable ERate. The Lending Bank 600 may inits discretion place deposits in excess of the established depositinsurance limit with any Relationship Bank 610, 615.

All funds will be transferred and deposits established on the SettlementDate. In addition to a bank's agreement with the Sponsor pursuant towhich the Sponsor will serve as the bank's subcustodian when the bank isacting as a Relationship Bank, each bank will also enter into anagreement with the Sponsor to act (i) as the bank's issuing agent whenit is a Receiving Bank and (ii) as settlement bank for payments inconnection with each deposit the bank has issued as a Receiving Bank andeach deposit the bank is holding as custodian for its Depositors as aRelationship Bank. Among other things, these arrangements between thebanks and the Sponsor permit deposits issued by Receiving Banks andfunds placed by Relationship Banks through the IDPS 100 to be netted onthe Settlement Date.

The Processor, through the IDPS 100, will provide each bank that isissuing a deposit and/or transferring funds on a Settlement Date withsettlement instructions and supporting reports setting forth (i) theprincipal amount, rate, maturity and payment terms of each deposit theProcessor will issue as issuing agent for the bank, (ii) the principalamount, rate, maturity and payment terms of each deposit to be issued tothe subcustodian of the bank, and (iii) the amount of funds, if any, tobe transferred to or received in bank's Settlement Account. In general,a bank transferring funds through the IDPS 100 on a Settlement Date (asRelationship Bank) will also issue deposits (as a Receiving Bank) inaggregate principal amounts equal to the funds it transfers and,therefore, will generally make or receive netted payments through itsSettlement Account reflecting placement fees and PVPs. In addition tothe netted amounts, a Surplus Bank 605 will receive the principal amountof the deposit(s) it issued to Depositors.

After the Settlement Date, the Issuing Agent for Bank 610 (as ReceivingBank), through the IDPS 100, will provide Bank 610 and the subcustodianfor Bank 615 with instructions and supporting reports with respect topayments in connection with the deposits issued by Bank 610. Thesubcustodian for Bank 615, through the IDPS 100, will provide reports toBank 615 (as custodian) with respect to each deposit it is holding for aDepositor 625. Any payments owed on the deposits established by a bank(as a Receiving Bank) will be netted against payments owed on thedeposits it is holding as custodian for its depositors and will be paidto or received in the bank's Settlement Account. Requests for earlywithdrawal of the deposit will be made through the IDPS 100 by aRelationship Bank, and payments of withdrawal proceeds, minus anypenalties, will be made by a Receiving Bank into its Settlement Accountand received by a Relationship Bank in its Settlement Account.

Referring to FIG. 7, a Depositor that has funds in an amount thatexceeds the established deposit insurance limit, but wishes to have allof the funds eligible for established deposit insurance, will enter intoan agreement with a Relationship Bank (the “Depositor Agreement”) toplace potential deposit amounts with one or more banks in amounts not toexceed the established deposit insurance limit. The Relationship Bank705, 710, 715, 710 will agree to act as agent for Depositor 725, 730,735, 740, respectively, in placing the order to process the Depositor'spotential deposit amounts through the Interbank Deposit PlacementSystem. The Relationship Bank 705, 710, 715, 720 will agree to act asthe custodian for the Depositor 725, 730, 735, 740, respectively, inholding the deposits established by the Receiving Banks. TheRelationship Bank 705, 710, 715, 720 (as Receiving Bank) will issue adeposit to the subcustodian for each Relationship Bank from which adeposit portion has been allocated by the Interbank Deposit PlacementSystem. For example, Relationship Bank 710 is allocated funds from adepositor of Relationship Bank 720. In transaction 750, RelationshipBank 710, as Receiving Bank, will issue a deposit to the subcustodianfor Relationship Bank 720. No physical documents evidencing the depositsare issued. Instead, the deposits are recorded on records of theReceiving Bank in the name of the subcustodian for the RelationshipBank. The Processor maintains records of the deposits issued for eachDepositor.

If a Depositor wishes to reinvest the funds from a maturing deposit, theDepositor may so instruct the Relationship Bank and the RelationshipBank may resubmit the funds for placement through the IDPS 100 as a newplacement, in which case the funds may be deposited at the ReceivingBank that issued the maturing deposit or at a different Receiving Bank.

All payments with respect to the deposits issued by Receiving Banks willbe made by Receiving Banks to Relationship Banks through the Processor.The Relationship Bank, in turn, will credit the funds to the account ofthe Depositor or disburse them at the Depositor's direction.

In one embodiment, the IDPS 100 will generally not place deposits with abank on any Placement Date on which the bank is not submitting depositsof a Depositor for placement through the IDPS 100. However, on PlacementDates when there is an excess of deposits to be placed through the IDPS100 that cannot be placed in amounts under the established depositinsurance limit at the banks submitting orders, the IDPS may, in itssole discretion, offer funds to Surplus Banks. The interest rate onthese unmatched deposits will be established by the IDPS 100 with eachSurplus Bank through a procedure established by the Processor. Althougha bank accepting such funds will be acting as a Surplus Bank, it willestablish deposits in the same manner as if it were a Receiving Bank,including paying or receiving a PVP to reconcile variances with theERate, and will have the same obligations with respect to the depositsas a Receiving Bank. The Surplus Bank may pay to the IDPS 100 any excessof the interest rate negotiated between the Surplus Bank and the IDPS100 over the applicable ERate and may receive from the IDPS 100 anyexcess of the applicable ERate over the rate negotiated between them.The Interbank Deposit Service enables each bank to continue setting itsown deposit terms (e.g., interest rates), which reflect the demand ofthe bank for funds and local market conditions. This mechanism ensuresthat low-cost funds passed through the IDPS 100 benefit the banks thatplaced customer funds through the IDPS 100.

In one embodiment, the Sponsor(s) associated with the Interbank DepositService may receive a fee from each bank for every transaction. In oneembodiment, the fee is a specified number of basis points per dollartransferred through the IDPS 100. In another embodiment, the fee islower for shorter term deposits (i.e., 4-week versus 52-week deposits).

In another embodiment, placement of funds only occurs between depositshaving the same maturity, such that (for example) a bank submittingcustomer funds to be placed in a 13-week CD to the IDPS 100 onlyreceives 13-week money in exchange. Alternatively, the Interbank DepositService may be implemented to permit and facilitate the transfer of onematurity of deposit for another, or facilitate the transfer ofnon-maturity deposits. The Interbank Deposit Service may also implementuniform practices and procedures for handling early withdrawals.

The IDPS 100 may allocate funds among multiple banks pursuant to one ormore algorithms. For example, the algorithm used for allocating funds ischosen to reach goals such as:

(1) Minimizing the total number of Deposit Mismatches/Deposit PlacementFailures;

(2) Maximizing the percentage of Lending Bank deposits that are fullyinsured; and

(3) Reducing the average net present value payment made by each bank.

In yet another embodiment, for a given number of banks, the algorithmselects, within each maturity, the largest potential deposit amounts andswaps the first tranche (in some amount up to the established depositinsurance limit) with a similar sized tranche from a bank with thesecond largest potential deposit amount that earns the same or similarinterest rate, and then does the same with the bank submitting the thirdlargest potential deposit amount and same or similar interest rate, andso on. In such an embodiment, a “similar” interest rate might be aninterest rate within a specified range of the interest rate of thepotential deposit amounts being allocated.

In yet another embodiment, the placement operation is conducted forproducts having a given maturity as follows. First, all of the excesscustomer funds from each Relationship Bank are submitted to the IDPS 100and divided into tranches. Second, the average interest rate offered byeach bank on the funds submitted to the IDPS 100 is determined. In anembodiment, the interest rate so determined is a weighted average.Third, an ERate is selected based on the determinations in step twoabove. In one embodiment, the ERate is the average value determined instep two. Fourth, the IDPS 100 determines an ordering for the banksbased on the closeness of the interest rate of each bank to the ERate.Fifth, the largest deposit from the bank with an interest rate closestto the ERate is allocated through the IDPS 100. The tranches that makeup this deposit are swapped with tranches from customers at banks whoseinterest rates are the furthest from the ERate. For example, the firsttranche can be swapped with a tranche from a deposit in a bank whoseinterest rate is the highest above the ERate, and the second tranche canbe swapped with a tranche from a deposit in a bank whose interest rateis the lowest below the ERate, and so on. Sixth, the second largestdeposit from the bank is allocated through the IDPS 100, and so on.

Other embodiments employ similar algorithms, except that thesealgorithms match tranches first with tranches from banks whose interestrates are closest to the ERate. Matching in this manner tends to reducethe amount of Rate Bridge payments that must be made through the IDPS100.

Other possible algorithms for the placement operation are apparent tothose skilled in the art. In some placement operations, a standardtranche size is determined and used, and equal-sized tranches arematched among banks. The standard tranche size is at or, more often,below the established deposit insurance limit, such that any depositformed from a tranche, with interest (if any), is fully insured. In suchembodiments, each excess deposit is divided into standard size tranches,and any remainder (“a remainder-tranche”) may be dealt with by matchingit with other, like-sized remainder-tranches, or as an unmatched depositpursuant to a mismatch resolution procedure. A goal may be to maximizethe size of the individual tranches, as well as minimizing the totalnumber of tranches.

The choice of which algorithms to use for the placement operation and/orfor determining tranche size may depend on the particular deposit termsof the excess deposits submitted to the IDPS 100 for allocation. Theplacement operation may require one-to-one placements where a tranchefrom one bank is swapped with a like-sized tranche from another bank. Inother embodiments, one-to-one placements are not necessary. For example,a first customer from a first bank receives a deposit from a secondbank, a second customer from the second bank receives a deposit from athird bank, and a third customer from the third bank receives a depositfrom the first bank. In this example, each bank has contributed atranche to the IDPS 100, and each bank has issued a deposit to thecustomer of another bank.

The customer is responsible for ensuring that he or she is fully coveredby deposit insurance in all deposits (as is currently the case with allother bank accounts) but the IDPS 100 attempts to ensure that thedeposits transferred through the IDPS 100 are fully insured. Eachcustomer may be required or requested to identify, at the time he or sheplaces a deposit, information to the IDPS 100 regarding all banks inwhich it otherwise does not want to place deposits (which would includeall banks in which the customer maintains an account). In situationswhere the initial run of the algorithm places a deposit in a bank wherea particular customer has already insured deposits, the IDPS 100reallocates such new deposit to another bank.

At the initial implementation of the invention in a given market, theIDPS 100 may initiate the placement algorithm only one day per week (thePlacement Date). In a vigorous market, more frequent, and ultimately,multiple and/or continuous daily placements may take place.

Municipal deposits (a deposit of a state or local governmental entity)can receive special treatment using the IDPS 100. For example, in theUnited States many states and municipalities require as a matter oflocal or state law or as a matter of preference or practice that theirdeposits be placed with financial institutions located in or doingbusiness within the state, county or municipality. Accordingly, the IDPS100 can direct such municipal funds to banks within the state orcommunity where they originated, either based on a preference specifiedby the customer, and/or automatically in accordance with applicable law.When the local market might be very small, the IDPS 100 may reserve theright to reject or limit orders to process potential deposit amounts ofmunicipalities until such time as it is able to find acceptable localplacements.

In the case of very large potential deposit amounts, the IDPS 100 mayutilize one of several possible mechanisms to ensure that all theinterest earned on such deposits remains fully covered by depositinsurance (for example, by allocating interest payments in depositsamong approved banks that did not receive portions of the potentialdeposit amount (i.e., principal)).

The present invention can further encompass various means for handlingdeposit mismatches. Deposit mismatches (or “unmatched deposits”) canoccur when a bank transfers deposits through the IDPS 100 and there arenot enough other eligible banks with which the IDPS 100 can place funds.This is most likely to occur when a bank transfers through the IDPS 100large potential deposit amount, whether from one or many customers.

Mismatches are minimized by balancing the maximum size of the potentialdeposit amounts that may be submitted with the number of banks and thefrequency of the Placement Dates. In spite of such measures, mismatchescan be expected to occur.

To ensure full deposit insurance coverage, a portion (e.g., $f) of a$1,000,000 potential deposit amount that was mismatched in its entiretyis placed with a Surplus Bank in an amount that is no more than theestablished deposit insurance limit. The Surplus Bank is required toassume responsibility for issuing a deposit to the customer whodeposited the potential deposit amount at the Relationship Bank, as wellas paying or receiving interest through the IDPS 100 as an upfrontpresent value payment, or, alternatively, as a flow of funds over time.The remaining portions of the $1,000,000 mismatch are similarly placedwith other Surplus Banks.

In order to return to the Relationship Bank the same amount of depositsthat the Relationship Bank placed into the IDPS 100, the IDPS 100arranges for a Lending Bank to deposit $1,000,000 or portion thereofinto the Relationship Bank in exchange for a deposit at the ERate. Thedeposit placed by the Lending Bank has the effect of providing a sourceof liquidity to the IDPS 100.

The Lending Bank and the IDPS 100 may have an understanding or acontract that governs how to split the total return or loss associatedwith a mismatch.

The IDPS 100 can also facilitate the secondary market sale of depositsby customers. Although as a result of operation of the IDPS 100 acustomer may hold multiple deposits in multiple banks, the customer mayuse the Relationship Bank to sell some or all of the deposits on asecondary market prior to their maturity. For example, a customer holds$1,000,000 in deposits that it obtained through the Interbank DepositPlacement System, e.g. ten deposits of $100,000 issued by ten differentbanks. For the purposes of this example, it is assumed either that theinterest does not accumulate in the account holding the deposit, or thatthe insurance limit is in excess of $100,000. The customer instructs theRelationship Bank to sell $200,000 of the deposits. The RelationshipBank takes the sell order and conveys the sell order to a PreferredBroker to sell two of the $100,000 deposits. The Preferred Brokermatches the customer to one or more buyers and consummates the sale. ThePreferred Broker may maintain a secondary market in such deposits so asto facilitate transactions. If so, and when necessary, the PreferredBroker may purchase the deposits itself, selling them to the highestbidder at a later date.

The Preferred Broker notifies the IDPS 100, which, as the agent for theRelationship Bank (and indirectly for the customer), transfers theownership of $200,000 in deposits to the buyer(s). The Processor maymake the appropriate changes to the books and records it maintainsassociated with the deposits. The Preferred Broker becomes the agent ofthe buyer(s), with the IDPS 100 as the agent of Preferred Broker.

The Relationship Bank may collect a service fee. The Preferred Brokermay receive a commission. The IDPS 100 may receive a transaction fee(which may be dependent on the size of the commission/spread of thePreferred Broker).

In accordance with the present invention, the IDPS 100 is an orderplacement engine that executes an order placement process. The orderplacement process utilizes a sophisticated algorithm that automaticallymatches orders based on a pre-defined set of rules. This ensures anorder placement and execution utility that seeks to optimize, interalia, three different variables:

(1) Minimize the total number of mismatches;

(2) Maximize the percentage of Lending Bank deposits that are fullyinsured; and

(3) Minimize net present value payments among banks.

Initially, the order placement engine is scheduled to process orders oneor two times per week. As more banks participate in the InterbankDeposit Service and transaction volumes increase in the system, thematching schedule becomes more frequent, whereby the order placementengine could ultimately place orders many times on every business day.The order placement engine executes each type of deposit separately. Thetype of deposits that are expected to be supported by the IDPS 100include (but are by no means limited to):

(1) 1-week deposit;

(2) 4-week deposit;

(3) 13-week deposit;

(4) 26-week deposit;

(5) 52-week deposit;

(6) 78-week deposit;

(7) 104-week deposit;

(8) 130-week deposit;

(9) 156-week deposit;

(10) 182-week deposit;

(11) 208-week deposit;

(12) 234-week deposit;

(13) 260-week deposit;

(14) 286-week deposit;

(15) 312-week deposit;

(16) 338-week deposit;

(17) 364-week deposit;

(18) 390-week deposit;

(19) 416-week deposit;

(20) 442-week deposit;

(21) 468-week deposit;

(22) 494-week deposit;

(23) 520-week deposit; and

(24) Municipality deposits (with the same maturities as listed above).

(25) Non-maturity deposits (e.g., non-time deposits)

The Order placement process involves the following steps:

(1) Pre-Processing;

(2) Adjusting the Optimization Scenario;

(3) Executing the Placement rules;

(4) Customer Review of Proposed Allocations;

(5) Resolution of Mismatches through Lending Bank deposits; and

(6) Finalize Placements.

The order placement and execution utility seeks to optimize severaldifferent variables including:

(1) Minimizing the total number of mismatches, which in turn, reducesthe amount of funds that are needed from the Lending Bank, which theRelationship Banks accept to make their transactions whole. By reducingmismatches, the IDPS 100 minimizes its costs and simplifies its recordkeeping. The IDPS 100 is able to minimize mismatches by:

(a) Setting bank and customer potential deposit amount maximums. Byinstituting limits on the potential deposit amounts submitted by eachbank overall and each individual bank customer, the IDPS 100 can managethe available liquidity in the system.

(b) Using a periodic placement cycle. As the business grows, the IDPS100 adjusts the length of time between matching executions. Initially,the IDPS 100 may potentially place orders less than daily (e.g., once ortwice a week) in order to increase the number of orders in the system,thereby decreasing the number of mismatches. In such instances, banksand their customers are informed of the Placement Date and no funds aretransferred until the Settlement Date associated with that PlacementDate.

(2) Minimize net present value payments. The matching of depositsthrough the IDPS 100 is achieved through a mathematical algorithm thatplaces funds with banks whose total interest payments are generallyclosest in value. This minimizes the net amount of present valuepayments (PVPs) that are made to or received by each Relationship Bankand Receiving Bank.

(3) Direct Lending Bank deposit placements to banks having the greatestdeposit limits remaining. The Lending Bank may establish deposit limitsfor deposits established at each bank. In order to minimize costs and toafford greatest flexibility to the IDPS, the IDPS attempts to placeLending Bank funds with banks that have the largest deposit limits atthe time of placement.

(4) Maximize the percentage of the Lending Bank deposits that are fullyinsured. In order to minimize costs to the IDPS 100 and risk to theLending Bank, the IDPS 100 attempts to maximize the amount of anyLending Bank deposits used to cover mismatches that are fully insured.When a mismatch occurs, the Lending Bank provides funds to the ReceivingBank. In return for the funds from the Lending Bank, the Receiving Bankestablishes a deposit for the full amount of such funds.

In one embodiment, an algorithm in Processor 412 of IDPS 410 is executedto break-down customer orders to process potential deposit amounts intoinsured deposit portions (tranches). Daily within each group, a maximumtranche size is calculated for each product group. Standard tranchesizes are designated based on the deposit terms. The tranche size is setsuch that the total deposit amount does not exceed the establisheddeposit insurance limit during the term of the product, even if interestis compounded and held to maturity. All tranches are less than or equalto the calculated tranche size for that specific product group. Actualtranche sizes are determined daily during the execution of the matchingrules and may take into account at least one rollover period. If anorder to process a potential deposit amount is smaller than a systemdefined minimum tranche size, the order is processed as an exception.Orders are stored in tranches in the Processor. The placement engine isrun for each product term separately.

Throughout the day, Relationship Banks submit orders to the IDPS 100where they are stored in the Processor until the order placementoptimization is executed. Prior to the placement and filling ofInterbank Deposit Service orders, processing occurs to organize andcategorize the orders placed by individual banks. This optimizes theorder placement process.

Orders are organized/categorized into the following groups:

(1) Product Type: Certificate of Deposits and Municipal Certificate ofDeposits.

(2) Product Terms: 1 week, 4 weeks, 13 weeks, 26 weeks, 52 weeks, or thelike.

An optimization scenario is selected and the order match optimization isexecuted so as to optimize in some form the following three variables.

(1) Minimize the total number of Deposit Mismatches/Deposit PlacementFailures;

(2) Maximize the percentage of Lending Bank deposits that are fullyinsured; and

(3) Reduce net present value payments to banks as a whole.

The IDPS 100 may prioritize these variables differently based on themake-up of orders in the system and the configuration of banks placingorders in the placement cycle. For example, if most Lending Bankdeposits could be fully insured, then the IDPS 100 may want to placemore emphasis on minimizing present value payments rather than onminimizing the number of mismatches.

Depending on how the optimization scenario is adjusted to prioritize thethree variables, orders are placed based on:

(1) Product type (Municipal CDs generally must be placed first becauseof the additional geographical restrictions on their placement);

(2) Potential deposit amount (larger potential deposit amounts aregenerally placed first to minimize Deposit Mismatches/Deposit PlacementFailures);

(3) Interest Rate (orders with similar interest rates are matched tominimize present value payments);

(4) Credit-worthiness of bank (orders from least credit-worthyinstitutions are placed first to reduce the likelihood that a mismatchwill occur at such institutions which will, in turn, minimize risk tothe IDPS 100 and Lending Bank); and

(5) The ability of a Relationship Bank to offer the Lending Bank a fullyinsured deposit (banks who have already issued deposits to the LendingBank may be allocated deposits first to maximize the number of fullyinsured Lending Bank deposits).

The IDPS 100 attempts not to place deposits in a bank where a customeralready has deposits. In addition to utilizing a customer validationprocess, the IDPS 100 places a preference on placing orders with banksthat belong to different geographical territories. Banks are grouped bygeographic territories. Each state is grouped into a geographic regionof the United States. Logic is included to select an order from:

(1) a different state within the geographic region of an order;

(2) a different geographic region than the state that the orderoriginated from;

(3) a different county within the same state; and

(4) a same state as the selected order (often necessary for municipaldeposits).

FIGS. 8A and 8B show a series of steps implemented in accordance withthe present invention. The steps set forth in 8A and 8B may occur in thesequence set forth therein, or in a difference sequence. Potentialdeposit amounts that exceed an established deposit insurance limit areprocessed by the Processor so that the potential deposit amounts arefully insured. The potential deposit amounts are allocated by theProcessor to banks. The Processor, in turn, establishes on behalf of thebanks multiple deposits for Depositors of the potential deposit amounts.Each deposit that is a time deposit has a predetermined maturity. Instep 805, a Settlement Account is established for each bank. In step810, the Processor receives multiple orders to process the potentialdeposit amounts. In step 815, a determination is made if the present daycorresponds to a predetermined Placement Date associated with theorders. In step 820, based on the orders, the Processor sorts bymaturity the deposits to be established. In step 825, each of thepotential deposit amounts is partitioned into multiple deposits to beestablished. Each such amount does not exceed the established depositinsurance limit. In step 830, the Processor determines an ERate based ona volume weighted average rate of the orders the Processor receives. TheProcessor sorts the maturities of the deposits to be established basedon the orders. In step 835, the Processor assigns each of the depositportions to a specific one of the banks in response to each order, andcreates a proposed list of the banks to which the deposit portions areto be allocated. In step 840, the proposed list is available to arecipient (e.g., the depositor that originated the potential depositamount order) for review. The recipient is offered the option ofmodifying the proposed list during an established “change” time window.In steps 845, 850, 855, the Processor waits until the “change” timewindow expires. If the recipient desires to make changes during the timewindow, those changes are implemented (step 855). After the “change”time window expires, the Processor compares an interest rate offered byeach specific bank for a particular deposit maturity to an ERateestablished by the Processor for the particular maturity (step 860). Instep 865, the Processor calculates the amount of a payment to compensatefor differences between the interest rate specified by the banks and theERate established by the Processor for the particular maturity. In step870, for each deposit portion, a deposit is established on behalf of theReceiving Bank to which such deposit portion was assigned by theProcessor. In step 870, on the settlement date the Processor credits anddebits the Settlement Accounts, for appropriate banks to reflectpayments and fees in respect of deposits established at a time after thePlacement Date.

While several of the aforementioned examples refer to U.S. dollars andthe current U.S. Federal Deposit Insurance Corporation (FDIC) $100,000insurance limit, with appropriate substitutions these examples may beused to illustrate the implementation of the invention in systems usingcurrencies other than dollars, with different insurance limits and withdifferent institutions, and with different countries' insuranceprograms.

Furthermore, although certificate of deposits (CDs) have been disclosedas being used as deposits, other types of deposits may be supported bythe placement engine.

The present invention may be implemented with any combination ofhardware and software. If implemented as a computer-implementedapparatus, the present invention is implemented using means forperforming all of the steps and functions described above.

The present invention may be implemented with any combination ofhardware and software. The present invention can be included in anarticle of manufacture (e.g., one or more computer program products)having, for instance, computer useable media. The media has embodiedtherein, for instance, computer readable program code means forproviding and facilitating the mechanisms of the present invention. Thearticle of manufacture can be included as part of a computer system orsold separately.

It will be appreciated by those skilled in the art that changes could bemade to the embodiments described above without departing from the broadinventive concept thereof. It is understood, therefore, that thisinvention is not limited to the particular embodiments disclosed, but itis intended to cover modifications within the spirit and scope of thepresent invention.

1. An automated method of processing funds in amounts that are subjectto an established deposit insurance limit so that the funds are eligibleto be fully insured, the funds being assigned to a processor thatcreates a plurality of deposits on behalf of a plurality of banks fordepositors of the funds, the method comprising: (a) receiving at theprocessor a plurality of orders to process the funds, each orderincluding an indication of the maturity of the deposits to beestablished; (b) sorting, using the processor, the deposits to beestablished by maturity; (c) partitioning, using the processor, each ofthe fund amounts into a plurality of deposit portions, each depositportion not exceeding the established deposit insurance limit; and (d)allocating by the processor each of the deposit portions to a specificone of the banks, each specific deposit portion being used to establisha deposit for one of the banks that the deposit portion was allocatedto, and wherein the maturity-sorted deposits are allocated so as tomatch deposits of the same maturity for each bank contributing fundswith the funds allocated to the respective bank.
 2. The method of claim1 wherein each order further includes an indication of the interest rateof the deposits, the method further comprising: (e) establishing asettlement account for each of the banks; (f) comparing, using theprocessor, the interest rate specified or paid by each specific bank fora particular deposit maturity to an interest rate established by theprocessor for the particular maturity; and (g) calculating, using theprocessor, payments to be credited to or debited from the settlementaccount of each of the banks based on differences between the interestrates specified or paid by the respective banks and the interest rateestablished by the processor for the particular maturity.
 3. The methodof claim 2 further comprising: (h) in response to each order, makingavailable to a recipient a proposed list of banks to which the depositportions are allocated, and offering the recipient the option ofmodifying the proposed list during an established time window; and (i)establishing, using the processor, a deposit for the recipient on behalfof the bank on the list to which the specific deposit portion wasallocated by the processor after the time window expires.
 4. The methodof claim 3 wherein the recipient is at least one of a representative ofthe bank that placed the order and the depositor associated with theorder.
 5. The method of claim 1 wherein the established depositinsurance limit is in accordance with a deposit insurance program in theUnited States.
 6. The method of claim 1 wherein the established depositinsurance limit is in accordance with a deposit insurance programoperated by the U.S. Federal Deposit Insurance Corporation (FDIC). 7.The method of claim 1 wherein the established deposit insurance limit isin accordance with a deposit insurance program operated by the NationalCredit Union Administration (NCUA).
 8. The method of claim 1 wherein theestablished deposit insurance limit is in accordance with the depositinsurance program of a foreign jurisdiction.
 9. The method of claim 1wherein the banks are unaffiliated with one another.
 10. The method ofclaim 1 wherein each amount of funds is less than or equal to theestablished deposit insurance limit.
 11. The method of claim 1 whereineach amount of funds exceeds the established deposit insurance limit.12. An automated method of processing funds in amounts that are subjectto an established deposit insurance limit so that the funds are eligibleto be fully insured, the funds being assigned to a processor thatcreates a plurality of deposits on behalf of a plurality of banks fordepositors of the funds, the method comprising: (a) partitioning, usingthe processor, each of the fund amounts into a plurality of depositportions, each deposit portion not exceeding the established depositinsurance limit; (b) allocating by the processor each of the depositportions to a specific one of the banks; (c) presenting to a recipient aproposed list of banks to which the deposit portions are allocated, andoffering the recipient the option of modifying the proposed list duringan established time window; and (d) establishing, using the processor, adeposit for the recipient on behalf of the bank on the list to which thespecific deposit portion was allocated by the processor after the timewindow expires.
 13. The method of claim 12 wherein the recipient is atleast one of a representative of the bank that placed one of the fundamounts and the depositor associated with the one fund amount.